Mortgage Insurance

What is 'Mortgage Insurance'

Mortgage insurance is an insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is otherwise unable to meet the contractual obligations of the mortgage. Mortgage insurance can refer to private mortgage insurance (PMI), mortgage life insurance, or mortgage title insurance. What these have in common is an obligation to make the lender or property holder whole in the event of specific cases of loss.

Private mortgage insurance may be called "lender's mortgage insurance" (LMI) if the premium on a PMI policy is paid by the lender and not the borrower. This is typically done in exchange for a higher rate or fee structure on the mortgage itself.

BREAKING DOWN 'Mortgage Insurance'

Mortgage insurance may come with a typical pay-as-you-go" premium payment, or may be capitalized into a lump sum payment at the time the mortgage is originated. For homeowners who are required to have PMI because of the 80% loan-to-value ratio rule, they can request that the insurance policy be canceled once 20% of the principal balance has been paid off.

Mortgage life insurance can be either declining-term (the payout drops as the mortgage balance drops) or level in its payout, although the latter costs more.

RELATED TERMS
  1. Lender-Paid Private Mortgage Insurance

    Private mortgage insurance that a mortgage lender pays on behalf ...
  2. Mortgage Life Insurance

    An insurance policy designed specifically to repay mortgage debt ...
  3. Mortgage Rate

    The rate of interest charged on a mortgage. Mortgage rates are ...
  4. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  5. Mortgage Banker

    A company, individual or institution that originates mortgages. ...
  6. Junior Mortgage

    A mortgage that is subordinate to a first or prior (senior) mortgage. ...
Related Articles
  1. Personal Finance

    Why You Don’t Need Mortgage Protection Life Insurance

    Mortgage protection life insurance sounds great in concept - a guarantee that your mortgage will be paid off if you die unexpectedly. But take a hard look at what you get before choosing it.
  2. Personal Finance

    Mortgage Protection Life Insurance Is Unnecessary

    Mortgage protection life insurance is a type of life insurance most people don’t need.
  3. Investing

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  4. Personal Finance

    Insuring Federal Housing Authority Mortgages

    This insurance has an edge over private mortgage insurance. Find out why.
  5. Personal Finance

    Mortgage Basics: Costs

    By Lisa SmithPeople generally think about a mortgage in terms of the monthly payment. While that payment represents the amount of money needed each month to cover the debt on the property, the ...
  6. Personal Finance

    Is An FHA Mortgage Still A Bargain?

    If you're putting down less than 20%, the FHA's mortgage insurance premium could cost you more than private mortgage insurance with a commercial lender.
  7. Personal Finance

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  8. Personal Finance

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  9. Personal Finance

    Understanding The Mortgage Payment Structure

    While a mortgage’s size and term set the baseline, the interest, taxes and insurance all influence the amount of the monthly payment.
  10. Retirement

    Additional Streams of Income for Seniors

    Find out how a reverse mortgage can work in your favor during retirement.
RELATED FAQS
  1. How can I avoid paying private mortgage insurance (PMI)?

    Private mortgage insurance (PMI) is an insurance policy that protects lenders from the risk of default and foreclosure, and ... Read Answer >>
  2. Do I still need private home owner insurance before closing?

    I have a pending FHA loan of $79,800 with a down payment of 3.5%. I was told insurance is included.  ... Read Answer >>
  3. Why would a homebuyer need to take out PMI (private mortgage insurance)?

    Learn why some home buyers are required to take out private mortgage insurance (PMI), and how it affects the total monthly ... Read Answer >>
  4. If my mortgage lender goes bankrupt, do I still have to pay my mortgage?

    Yes, if your mortgage lender goes bankrupt you do still need to pay your mortgage obligation. Sorry to disappoint, but there ... Read Answer >>
  5. Why do I need to pay private mortgage insurance (PMI)?

    The extra interest payments caused by private mortgage insurance may seem excessive, but there's a good reason lenders need ... Read Answer >>
  6. On average, what can I expect my private mortgage insurance (PMI) rate to be?

    Learn the several factors that come into play when insurance companies determine the private mortgage insurance rate for ... Read Answer >>
Trading Center